Court upholds Nine's debt lifeline

Colin Kruger and Gareth Hutchens

The rescue of Nine Entertainment remains on track with the Federal Court ruling today that opponents of a crucial scheme of arrangement cannot stop the deal going ahead.

Nine owes its creditors almost $3.4 billion, and $2.24 billion of that debt will expire on February 7.

A submission tendered in the Federal Court on Monday said: "The company will almost certainly not be able to repay the total sum which falls due on that date."

The Federal Court ruled today that the scheme of arrangement - which would convert all this debt into ownership of Nine - could go ahead despite opposition from some senior lenders.

The group have opposed the scheme on the grounds that they were not involved in negotiating it and will be disadvantaged if it is implemented.

The opposing lenders include GE Capital Finance, National Australia Bank and Royal Bank of Scotland which said ‘‘they have no desire to become minority shareholders’’ in an unlisted Nine.

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After the restructure Nine will be controlled by another group of senior lenders lead by hedge funds, Apollo and Oaktree, which will have additional legal rights to "board representation and corporate control" of Nine Holdings, the opposing group said in documents lodged with the court.

‘‘In short, the scheme will bestow immediate control of Nine Holdings upon Oaktree and Apollo,’’ the opposing lenders said.

Under the new constitution the new Nine board will ‘‘use commercially reasonable efforts to effect a listing within 18 months’’ of the scheme being implemented but is not obliged to pursue the listing.

The scheme will see senior lenders receive 95.5 per cent of the equity in Nine and share $573 million in proceeds from $700 million worth of fresh debt that will be raised.

This will effectively allow these lenders to receive cash for 25 per cent of the $2.28 billion worth of debt they hold.

The remainder of the cash from the debt raising will remain with Nine as working capital.

Apollo and Oaktree will end up with 37.4 per cent of Nine under the deal.

The mezzanine debt holders lead by Goldman Sachs - which are currently owed more than $1 billion - will end up with 3.75 per cent of Nine and a $20 million cash payment. The current owners, CVC, will end up with one per cent of the media group having lost close to $2 billion on its original investment.

The scheme needs the separate approval of the senior lenders, mezzanine lenders, and current owners.

The opposing lenders were hoping to be classed as a separate class of stakeholder from the other senior lenders which meant the scheme would require their separate approval.

The scheme meetings are scheduled to be held January 21 next year at Macquarie Group’s head office in Sydney. If approved by the three classes of stakeholders, the schemes will then go back to the federal court for final approval on January 29.